Copper fell slightly on Thursday, reversing direction as the dollar strengthened on disappointment that the European Central Bank declined to adopt strong measures to stimulate the economy. Metals rose early in the day after an unexpected Chinese rate cut, the second in a month, with investors hoping it would revive declining growth and metals demand in the world's biggest consumer of raw materials.
But a slide in the euro against the dollar to a one-month low pressured metals priced in dollars, making it more expensive for investors in other currencies. The slide came after the ECB cut interest rates to a record low but steered clear of more dramatic measures such as buying government bonds or flooding banks with fresh liquidity.
Three-month copper on the London Metal Exchange fell 0.39 percent to end at $7,695 a tonne after earlier rising as much as 0.8 percent to a session high of $7,790 after the Chinese rate cut. Aluminium closed down 0.61 percent to $1,944 a tonne.
"The market is trying to hunt for direction and using the same data to justify prices going one way or the other. It shows how uncertain the market is," said Standard Bank analyst Leon Westgate. "OK the Chinese cut rates, (but) it takes several months to feed through, and the ECB has done what's expected, so the focus has switched back to (US) non-farm payrolls tomorrow."
Investors were also keeping an eye on Friday's key monthly US jobs report for clues on whether the Federal Reserve will take additional easing steps. Non-farm payrolls were expected to see an addition of 90,000 workers in June, with the unemployment rate holding steady at 8.2 percent. Copper has rebounded about 4 percent since last Thursday, lifted by a European agreement on a surprise euro zone rescue deal and expectations that weak economic data would lead to fresh stimulus measures by global central banks. "Today's ECB interest rate cut does little to alter the bleak economic outlook, and the bank is unlikely to announce any bolder unconventional measures for now," said Jennifer McKeown, senior European economist at Capital Economics.
In physical markets, opportunistic restocking in China has helped support copper prices and keep the spread of Shanghai's July contract over its October contract in backwardation since early May. Prices may also be bolstered by a small pick-up in downstream copper demand. In a note on Thursday, Barclays Commodities Research said demand was solid for transport-related copper and improving for copper wire order books in China, but warned that sentiment remained bearish, which means fewer long positions by investors.
In China, Shanghai aluminium was one of the session's best performers, with the most active Shanghai contact recovering 5.1 percent by the end of the day from a three-year low it posted last week as Chinese traders piled back in believing it was oversold."Despite problems of overcapacity in China, aluminium looks one of the most attractive to traders now among the industrial metals at these low price levels," said a metals buyer. In other metals, LME nickel ended down 1.36 percent at $16,700 a tonne and zinc shed 2.32 percent to end at $1,854 a tonne. Tin lost 1.44 percent to end at $18,875 a tonne and lead closed down 1 percent at $1,887 at tonne.
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